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Theresa May persuades cabinet on Brexit divorce, but Parliament challenge ahead

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British Prime Minister Theresa May, calling it a “decisive step,” said Wednesday evening that her cabinet had signed off on a draft divorce deal negotiated with the European Union, after telling the House of Commons earlier the agreement “takes us significantly closer to delivering what the British people voted for.”

May emerged from 10 Downing Street after what she characterized as a “long, detailed and impassioned” five-hour meeting with her cabinet. She delivered her statement over the heckling from a smattering of anti-Brexit protesters.

May, who said she would deliver a statement Thursday in Parliament, said that turning back from the negotiated draft now would raise the prospect of a no-deal Brexit in five months.

“The choice was this deal — which enables us to take back control and to build a brighter future for our country — or to going back to square one, with more division, more uncertainty and a failure to deliver on the referendum,” said May.

Watch May’s full statement:

U.K. prime minister tells reporters she has won the support of her cabinet for the agreement. She now faces the greater challenge of getting it approved by Parliament. 2:25

Pro-Brexit politicians from her own Conservative Party had already attacked May’s plan, saying it will bind Britain to EU rules and regulations long after it leaves the bloc in March.

The most vocal among those are Jacob Rees-Mogg and former foreign secretary Boris Johnson, who is believed to have designs on leading the party.

The withdrawal terms are just part of what will be a long process.

May has to publish in Parliament a copy of the withdrawal agreement and an outline agreement of Britain’s future relationship with the EU. Ministers must then arrange a debate and vote on the agreement, though the House of Lords will not have the power to block the deal.

May will have to carve out enough support for the deal among the myriad interests represented in the House of Commons, which includes MPs from Northern Ireland and Scotland.

“I know that there will be difficult days ahead,” she said. “This is a decision that will come under intense scrutiny, and it’s entirely as it should be, and entirely understandable.”

Northern Irish Backstop

At the heart of the difficulty in negotiations had been the so-called Northern Irish backstop, an insurance policy to avoid a return to controls between the British province and EU-member Ireland which could threaten the 1998 peace accord which ended 30 years of violence.

The deal commits the two sides to a solution to guarantee the border between EU member Ireland and the U.K.’s Northern Ireland remains free of customs posts or other obstacles. It keeps the U.K. in a customs arrangement with the EU, and will last until superseded by permanent new trade arrangements. Both sides say they hope to have a new deal in place by the end of 2020, so the backstop is never needed.

“The choices before us were difficult, particularly in relation to the Northern Ireland backstop,” May admitted after the cabinet meeting.

Among the deal’s other key points: 

  • Transition period: Britain will leave the EU on March 29 but remain inside the bloc’s single market and bound by its rules until the end of December 2020, while the two sides work out a new trade relationship. The transition period can be extended by joint agreement before July 1, 2020 if both parties decide more time is needed.
  • Citizens’ Rights: EU citizens living in Britain, and Britons elsewhere in the bloc, will continue to have the rights to live and work that they do now.
  • A political declaration: Stating that Britain and the EU will seek a “free trade area combining deep regulatory and customs cooperation,” and “ambitious, comprehensive and balanced” arrangements for the services sector. It aims to include: visa-free travel for short-term visits, smooth rail road, air and sea transport and “comprehensive, close, balanced and reciprocal law enforcement and judicial cooperation.”

Scotland’s First Minister Nicola Sturgeon called the deal bad for Scotland’s economy. (Stefan Rousseau/Pool via reuters)

Scotland’s First Minister Nicola Sturgeon said on Wednesday that the deal was bad for the Scottish economy, adding that parliamentary approval would be difficult to win.

“It is obvious that [May] can barely unite her cabinet on this deal, and it is also increasingly clear that she will struggle to get a majority for it in Parliament,” she said in an emailed statement.

“If this deal is indeed rejected by Parliament, then the U.K. government must return to the negotiating table to secure a better one.”

May told lawmakers in weekly question period earlier in the day that the deal means Britain will “take back control” of its laws and borders “while protecting jobs, security and the integrity of our United Kingdom.”

“The cabinet will decide on the next steps in the national interest. I’m confident that this takes us significantly closer to delivering what the British people voted for in the referendum,” May told Parliament.

‘A decisive step’

The ultimate outcome for the United Kingdom remains uncertain: scenarios range from a calm divorce to rejection of May’s deal, potentially sinking her premiership and leaving the bloc with no agreement, or another referendum.

The hours-long meeting led to heightened speculation in the British media, including the possibility of a ministerial resignation or even a leadership challenge to May, which would require at least 48 of 315 Conservative MPs signing off.

The EU’s chief negotiator Michel Barnier called the draft deal “a decisive step toward concluding this negotiation” and signalled that EU leaders can convene a summit soon to endorse it.

Barnier told reporters Wednesday, “I consider that we have achieved ‘decisive progress”‘ — the announcement that EU leaders had been awaiting from him to call a summit.

Barnier didn’t directly address the summit or its possible date, although Irish Prime Minister Leo Varadkar has said that a leaders’ meeting is penciled in for Nov. 25.

Anti-Brexit demonstrators protest outside Parliament. May has been adamant there won’t another referendum on leaving the European Union. (Matt Dunham/Associated Press)

May repeated her pledge earlier in the day that there would not be another public vote. The Leave vote comprised 51.9 per cent of voters in 2016.

“We will not rerun the referendum, we will not renege on the decision of the British people,” she told Parliament.

“We will deliver Brexit and the United Kingdom is leaving the European Union on the 29th of March 2019,” she added.

May said that in the post-Brexit landscape, Britain will be able to strike independent trade deals with countries around the world, but she will need to convince at least some members of other parties.

The Northern Irish Democratic Unionist Party (DUP), whose seats have helped keep May’s government in power, said it would not back any deal that treated the British province differently from the rest of the United Kingdom.

“If she decides to go against all of that, then there will be consequences,” DUP leader Arlene Foster said.

‘Bungled negotiations’

Ian Blackburn, MP from the Scottish National Party, called May “hamstrung, divided, desperate and looking defeated.”

Opposition Leader Jeremy Corbyn told the British Parliament the deal follows two years of “bungled negotiations” and that May is putting a false choice before MPs, between “her botched deal or no deal.”

“It breaches the prime minister’s own red lines,” he said. “It doesn’t deliver a strong economic deal that supports jobs and industry, and we know they haven’t prepared seriously for ‘no deal’.”

The divorce also needs to be approved by the EU and European Parliaments, while Ireland’s Leo Varadkar has promised his own Parliament a vote on the draft deal.

Varadkar told Irish lawmakers on Wednesday that “we are close” to “a legally binding and legally operable withdrawal agreement.” But he says nothing is guaranteed, and a lot of things can still go wrong.

Conservative lawmakers opposed to May since at least when she unveiled her so-called Chequers plan will have to weigh the implications of defeating the deal. The consequences could include May’s departure as leader, and a national election they could very well lose to Labour. 

A no-deal Brexit would also pitch the world’s fifth largest economy into the unknown during a time Western countries are already grappling with the unconventional U.S. presidency of Donald Trump and growing assertiveness from Russia and China.

With files from CBC and The Associated Press

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Real Estate

5 ways to reduce your mortgage amortization

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Since the pandemic hit, a lot of Canadians have been affected financially and if you’re on a mortgage, reducing your amortization period can be of great help.

A mortgage amortization period is the amount of time it would take a homeowner to completely pay off their mortgage. The amortization is typically an estimate based on what the interest rate for your current term is. Calculating your amortization is done easily using a loan amortization calculator which shows you the different payment schedules within your amortization period.

 In Canada, if you made a down payment that is less than the recommended 20 per cent of the total cost of your home, then the longest amortization period you’re allowed to have is 25 years. The mortgage amortization period not only affects the length of time it would take to completely repay the loan, but also the amount of interest paid over the lifecycle of the mortgage.

Typically, longer amortization periods involve making smaller monthly payments and having a much higher total interest cost over the duration of the mortgage. While on the other hand, shorter amortization periods entails making larger monthly payments and having lower total interest costs.

It’s the dream of every homeowner to become mortgage-free. A general rule of thumb would be to try and keep your monthly mortgage costs as low as possible—preferably below 30 per cent of your monthly income. Over time, you may become more financially stable by either getting a tax return, a bonus or an additional source of income and want to channel that towards your principal.

There are several ways to keep your monthly mortgage payments low and reduce your amortization. Here are a few ways to achieve that goal:

1. Make a larger down payment

Once you’ve decided to buy a home, always consider putting asides some significant amount of money that would act as a down payment to reduce your monthly mortgage. While the recommended amount to put aside as a down payment is 20 per cent,  if you aren’t in a hurry to purchase the property or are more financial buoyant, you can even pay more.

Essentially, the larger your down payment, the lower your mortgage would be as it means you’re borrowing less money from your lender. However, if you pay at least 20 per cent upfront, there would be no need for you to cover the additional cost of private mortgage insurance which would save you some money.

2. Make bi-weekly payments

Most homeowners make monthly payments which amount to 12 payments every year. But if your bank or lender offers the option of accelerated bi-weekly payment, you will be making an equivalent of one more payment annually. Doing this will further reduce your amortization period by allowing you to pay off your mortgage much faster.

3. Have a fixed renewal payment

It is normal for lenders to offer discounts on interest rate during your amortization period. However, as you continuously renew your mortgage at a lower rate, always keep a fixed repayment sum.

Rather than just making lower payments, you can keep your payments static, since the more money applied to your principal, the faster you can clear your mortgage.

4. Increase your payment amount

Many mortgages give homeowners the option to increase their payment amount at least once a year. Now, this is very ideal for those who have the financial capacity to do so because the extra money would be added to your principal.

Irrespective of how small the increase might be, in the long run, it would make a huge difference. For example, if your monthly mortgage payment is about $2,752 per month. It would be in your best interest to round it up to $2,800 every month. That way, you are much closer to reducing your mortgage amortization period.

5. Leverage on prepayment privileges

The ability for homeowners to make any form of prepayment solely depends on what mortgage features are provided by their lender.

With an open mortgage, you can easily make additional payments at any given time. However, if you have a closed mortgage—which makes up the larger percentage of existing mortgages—you will need to check if you have the option of prepayments which would allow you to make extra lump sum payments.

Additionally, there may also be the option to make extra lump sum payments at the end of your existing mortgage term before its time for renewal.

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Mortgage insurance vs. life insurance: What you need to know

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Your home is likely the biggest asset you’ll ever own. So how can you protect it in case something were to happen to you? To start, homeowners have a few options to choose from. You can either:

  • ensure you have mortgage protection with a life insurance policy from an insurance company or
  • get mortgage insurance from a bank or mortgage lender.

Mortgage insurance vs. life insurance: How do they each work?  

The first thing to know is that life insurance can be a great way to make sure you and your family have mortgage protection.

The money from a life insurance policy usually goes right into the hands of your beneficiaries – not the bank or mortgage lender. Your beneficiaries are whoever you choose to receive the benefit or money from your policy after you die.

Life insurance policies, like term life insurance, come with a death benefit. A death benefit is the amount of money given to your beneficiaries after you die. The exact amount they’ll receive depends on the policy you buy.

With term life insurance, you’re covered for a set period, such as 10, 15, 20 or 30 years. The premium – that’s the monthly or annual fee you pay for insurance – is usually low for the first term.

If you die while you’re coved by your life insurance policy, your beneficiaries will receive a tax-free death benefit. They can then use this money to help pay off the mortgage or for any other reason. So not only is your mortgage protected, but your family will also have funds to cover other expenses that they relied on you to pay.

Mortgage insurance works by paying off the outstanding principal balance of your mortgage, up to a certain amount, if you die.

With mortgage insurance, the money goes directly to the bank or lender to pay off the mortgage – and that’s it. There’s no extra money to cover other expenses, and you don’t get to leave any cash behind to your beneficiaries.

What’s the difference between mortgage insurance and life insurance?

The main difference is that mortgage insurance covers only your outstanding mortgage balance. And, that money goes directly to the bank or mortgage lender, not your beneficiary. This means that there’s no cash, payout or benefit given to your beneficiary. 

With life insurance, however, you get mortgage protection and more. Here’s how it works: every life insurance policy provides a tax-free amount of money (the death benefit) to the beneficiary. The payment can cover more than just the mortgage. The beneficiary may then use the money for any purpose. For example, apart from paying off the mortgage, they can also use the funds from the death benefit to cover:

  • any of your remaining debts,
  • the cost of child care,
  • funeral costs,
  • the cost of child care, and
  • any other living expenses. 

But before you decide between life insurance and mortgage insurance, here are some other important differences to keep in mind:

Who gets the money?

With life insurance, the money goes to whomever you name as your beneficiary.

With mortgage insurance, the money goes entirely to the bank.

Can you move your policy?

With life insurance, your policy stays with you even if you transfer your mortgage to another company. There’s no need to re-apply or prove your health is good enough to be insured.

With mortgage insurance, however, your policy doesn’t automatically move with you if you change mortgage providers. If you move your mortgage to another bank, you’ll have to prove that your health is still good.

Which offers more flexibility, life insurance or mortgage insurance?

With life insurance, your beneficiaries have the flexibility to cover the mortgage balance and more after you die. As the policy owner, you can choose how much insurance coverage you want and how long you need it. And, the coverage doesn’t decline unless you want it to.

With mortgage insurance through a bank, you don’t have the flexibility to change your coverage. In this case, you’re only protecting the outstanding balance on your mortgage.

Do you need a medical exam to qualify? 

With a term life insurance policy from Sun Life, you may have to answer some medical questions or take a medical exam before you’re approved for coverage. Once you’re approved, Sun Life won’t ask for any additional medical information later on.

With mortgage insurance, a bank or mortgage lender may ask some medical questions when you apply. However, if you make a claim after you’re approved, your bank may ask for additional medical information.* At that point, they may discover some conditions that disqualify you from receiving payment on a claim.

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5 common mistakes Canadians make with their mortgages

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This article was created by MoneyWise. Postmedia and MoneyWise may earn an affiliate commission through links on this page.

Since COVID-19 dragged interest rates to historic lows last year, Canadians have been diving into the real estate market with unprecedented verve.

During a time of extraordinary financial disruption, more than 551,000 properties sold last year — a new annual record, according to the Canadian Real Estate Association. Those sales provided a desperately needed dose of oxygen for the country’s gasping economy.

Given the slew of new mortgages taken out in 2020, there were bound to be slip-ups. So, MoneyWise asked four of the country’s sharpest mortgage minds to share what they feel are the mistakes Canadians most frequently make when securing a home loan.

Mistake 1: Not having your documents ready

One of your mortgage broker’s primary functions is to provide lenders with paperwork confirming your income, assets, source of down payment and overall reliability as a borrower. Without complete and accurate documentation, no reputable lender will be able to process your loan.

But “borrowers often don’t have these documents on hand,” says John Vo of Spicer Vo Mortgages in Halifax, Nova Scotia. “And even when they do provide these documents, they may not be the correct documentation required.”

Some of the most frequent mistakes Vo sees when borrowers send in their paperwork include:

  • Not including a name or other relevant details on key pieces of information.
  • Providing old bank or pay statements instead of those dated within the last 30 days.
  • Sending only a partial document package. If a lender asks for six pages to support your loan, don’t send two. If you’re asked for four months’ worth of bank statements, don’t provide only one.
  • Thinking low-quality or blurry files sent by email or text will be good enough. Lenders need to be able to read what you send them.

If you send your broker an incomplete documents package, the result is inevitable: Your mortgage application will be delayed as long as it takes for you to find the required materials, and your house shopping could be sidetracked for months.

Mistake 2: Blinded by the rate

Ask any mortgage broker and they’ll tell you that the question they’re asked most frequently is: “What’s your lowest rate?”

The interest rate you’ll pay on your mortgage is a massive consideration, so comparing the rates lenders are offering is a good habit once you’ve slipped on your house-hunter hat.

Rates have been on the rise lately given government actions to stimulate the Canadian economy. You may want to lock a low rate now, so you can hold onto it for up to 120 days.

But Chris Kolinski, broker at Saskatoon, Saskatchewan-based iSask Mortgages, says too many borrowers get obsessed with finding the lowest rate and ignore the other aspects of a mortgage that can greatly impact its overall cost.

“I always ask my clients ‘Do you want to get the best rate, or do you want to save the most money?’ because those two things are not always synonymous,” Kolinski says. “That opens a conversation about needs and wants.”

Many of the rock-bottom interest rates on offer from Canadian lenders can be hard to qualify for, come with limited features, or cost borrowers “a ton” of money if they break their terms, Kolinski points out.

Mistake 3: Not reading the fine print

Dalia Barsoum of Streetwise Mortgages in Woodbridge, Ontario, shares a universal message: “Read the fine print. Understand what you’re signing up for.”

Most borrowers don’t expect they’ll ever break their mortgages, but data collected by TD Bank shows that 7 in 10 homeowners move on from their properties earlier than they expect.

It’s critical to understand your loan’s prepayment privileges and the rules around an early departure. “If you exit the mortgage, how much are you going to pay? It’s really, really important,” Barsoum says.

She has seen too borrowers come to her hoping to refinance a mortgage they received from a private or specialty lender, only to find that what they were attempting was impossible.

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